NOTES AND COMMENTS.

New Zealand Herald, Volume LXVIII, Issue 20819, 11 March 1931, Page 10

NOTES AND COMMENTS.

CONTROL OF MONEY. "A huge amount of the additional credit created by tho American banks during the later stages of the boom found its way not into trade and industry, but into tho slock market, thus supporting speculation and contributing lo the crash. It did this because American monetary policy was entirely unable to control the direction of the flow of the credit created by tho reserve banks," said tho Financial News in commenting on Mr. Reginald McKcntia's • address at the annual meeting of the Midland Bank. "Logically the responsibility of the banks cannot be held to stop at doing what they can lo prevent an orgy of gambling like that which attacked the United States in 1929. Logically Mr. McKenna's assertion that insufficient attention has been given to tho question of tho use of money implies something more positive than that. It implies that tho banks should get together to consider how far by concerted policy they can direct-the flow of their credit into fruitful channels. (Would not a round table conference and a frank and free discussion in 1920 have prevented them from inflating the Lancashire cotton mill boom as they did, to Lancashire's lasting harm?) It implies a conscious policy toward industry. It implies real co-operation among the joint stock banks and between those banks and the Bank of England. That co-operation does not exist to-day. The lack of it is probably the most serious defect of our banking system." GOLD STOCKS IN* FRANCE. " The currency crisis of 1926 left France very short of currency, and it is the making good of that shortage (combined with the accumulation of an idle balance of £100,000,000 to the credit of the Government) that has involved the absorption of £235,000,000 of gold," said Mr. R. G. Hawtrey, in a paper read before the Manchester Statistical Society. " But this process is essentially transitory. Once it is over the French will cease to be a disturbing factor in the world's gold market, unless something occurs to lead them to get rid of their gold. They might be involved in a war, or might merely get tired of the inordinate expense of holding £430,000,000 of gold when £150,000,000 would be more than ample. If this occurred the world would be faced all over again with the problems of an unstable gold standard, though this time it would take the form, not of deflation and depression, but of the less painful and more insidious evil, inflation. It may be contended, perhaps, that if France and America hold £1,360,000,000 out of the world's £2,300,000,000 of monetary gold, tho remainder is insufficient for the rest of the world. But that is, I think, a mistake. Efficient methods of economising gold are in operation in many countries. ... I am inclined to say that while tho French absorption of gold in the past two years has been, in fact, one of tho most powerful causes of the world depression, that is only because it has been allowed to react to an unnecessary degree upon the monetary policy of other countries." SPENDTHRIFT POLITICS. A change in the character of politics was remarked by Lord Grey of Fallodon in addressing a meeting in London at which a campaign calling on the Government and local authorities to cease all expenditure that is not absolutely necessary was inaugurated. Lord Grey said that before the war, political parties were engaged with such questions as extension of the franchise, Home Rule and the fiscal controversy, none of which involved additional public expenditure. Since the War, the parties had been competitors as regarded the expenditure of public money. All parties had shared the responsibility. At the last election a great part of the speeches was composed of claims mado to tho electors on tho ground either of what had been spent by a party in social services which cost money, or what a party was prepared to spend. Beyond all other differences between parties it was essential that this competition in spending public money must be stopped as a danger to our prosperity. "Wo have been adding to the national expenditure," Lord Grey continued, " ever since 1923. Though the expenditure due to the War has been falling there has been a great increase in tho total expenditure. It has been met so far by

increasing direct taxation. . . . The idea that you can finance heavy expenditure indefinitely by increasing direct taxation is a delusion. Take an estate of £2,000,000 of which the owner has died. The Government takes £1,000,000 of that estate. The owner does not feel it; he has gone. His successors will have more income than they had before. Nobody worries about that. What we are worried about is the effect on tlio national revenue if tlio million taken is spent by the Government and spent in balancing the Budget for tho year. This means that the Government cannot spend it over again; and more than that. Tho million, before tho Government took it, was bearing interest, and out of tlio interest every year it would pay £25,000 to tho revenue. That £25.000 a year has gono. Wo arc meeting tho expenses of tho year by drawing on capital. That is not sound finance. All this taxation is so much money drawn from capital that might 1)0 available for industry. How can we hold our own in a competitive export trade when the revival conies if wo are to bear the exceedingly heavy handicap of the burden of our taxation V'